Increasing the Instant Asset Write-Off

Last Updated: 29 May 2020

The instant asset write-off threshold has been increased from $30,000 to $150,000 and expanded access to include businesses with aggregated annual turnover of less than $500 million (up from $50 million). This applies from 12 March 2020 until 30 June 2020, for new or second‑hand assets first used or installed ready for use in this timeframe.

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The higher Instant Asset Write-Off (IAWO) threshold provides cash flow benefits for businesses that will be able to immediately deduct purchases of eligible assets each costing less than $150,000. The threshold applies on a per asset basis, so eligible businesses can immediately write‑off multiple assets.

Eligibility

Eligibility to use instant asset write-off depends on:

your aggregated turnover (the total ordinary income of your business and that of any associated businesses)

the date you purchased the asset and it was first used or installed ready for use

The criteria have changed over time so make sure you check whether your business is eligible.

From 1 July 2020 the instant asset write-off will only be available for small businesses with a turnover of less than $10 million and the threshold will be $1,000.

Businesses with a turnover of $500 million or more are not eligible to use instant asset write-off.

Timing

This applies from 12 March 2020 until 30 June 2020, for new or second‑hand assets first used or installed ready for use in this timeframe.

How to apply

The instant asset write-off eligibility criteria and threshold have changed over time. You need to check your business's eligibility and ensure you apply the correct threshold amount as stated by the Australian Taxation Office (ATO).

Examples of how the instant asset write-off can help your business

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Business benefits from increased asset threshold

Owen owns a company, ON Point Farms Pty Ltd, through which he operates a farming business in the Central Wheat Belt of Western Australia. ON Point Farms Pty Ltd has an aggregated annual turnover of $25 million for the 2019‑20 income year. On 1 May 2020, Owen purchases a second hand tractor for $140,000, exclusive of GST, for use in his business.

Under existing tax arrangements, ON Point Farms Pty Ltd is not able to immediately deduct assets costing more than $30,000 and instead would depreciate the tractor using an effective life of 12 years. Choosing to use the diminishing value method, ON Point Farms Pty Ltd would claim a tax deduction of $3,899 for the 2019‑20 income year.

Under the new $150,000 instant asset write‑off, ON Point Farms Pty Ltd would instead claim an immediate deduction of $140,000 for the purchase of the tractor in the 2019‑20 income year, $136,101 more than under existing arrangements. At the company tax rate of 27.5 per cent, Owen will pay $37,427.78 less tax in 2019‑20.

This will improve ON Point Farms Pty Ltd’s cash flow and help his business withstand and recover from the economic impact of the coronavirus.

Business benefits from increased turnover threshold

Samantha owns a company, Sam’s Specialty Roasters Pty Ltd, through which she operates a large food processing business in Brisbane. Sam’s Specialty Roasters Pty Ltd has an aggregated annual turnover of $150 million for the 2019‑20 income year. On 1 May 2020, Samantha purchases five new conveyor belts for her production facility for $40,000 each, exclusive of GST, for use in her business.

Under existing tax arrangements, Sam’s Specialty Roasters Pty Ltd is not eligible for the instant asset write‑off and instead would depreciate the conveyor belts using an effective life of 15years. Choosing to use the diminishing value method, Sam’s Specialty Roasters Pty Ltd would claim a total tax deduction of $4,456 for the 2019‑20 income year.

Under the new $150,000 instant asset write‑off, Sam’s Specialty Roasters Pty Ltd would instead claim an immediate deduction of $200,000 for the purchase of the conveyor belts (i.e. $40,000 for each conveyor) in the 2019‑20 income year, $195,544 more than under existing arrangements. At the company tax rate of 30 per cent, Samantha will pay $58,663.20 less tax in 2019‑20.

This will improve Sam’s Specialty Roasters Pty Ltd’s cash flow and help her business withstand and recover from the economic impact of the coronavirus.

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